UPDATE 2-US Treasury to block sale of Fannie Mae tax credits

Fri Nov 6, 2009 6:45pm EST

(Changes source and dateline, adds comment, background)

WASHINGTON Nov 6 (Reuters) - The U.S. Treasury will block the sale of Fannie Mae tax credits to Goldman Sachs Group (GS.N) because the transfer would harm taxpayers, an administration official said on Friday.

Fannie Mae FNM.N FNM.P, the largest provider of funding for U.S. home loans, said on Thursday in its quarterly results it was waiting for Treasury to approve a deal to transfer low income housing tax credits to unnamed investors.

The tax credits are incentives designed to bring more investment to low-income housing developments and are valued at $5.2 billion.

Fannie Mae was seized by regulators last year as the housing market slump saddled the firm with massive losses, forcing the government to inject billions of dollars into the company.

The official, who declined to be named, said, "in short, withholding approval of the proposed sale affords more protection of the taxpayers than does providing approval."

A Goldman Sachs spokesman declined to comment.

The sale of the tax credits would have helped stabilize Fannie Mae. The company on Thursday said bad mortgages and a federal foreclosure prevention program left it with a $18.9 billion loss, forcing it to tap a Treasury line of credit again to plug a hole in its net worth.

Fannie Mae's loss stemmed from $22 billion in credit-related expenses. These included charges on mortgages it bought out of securities as it modified loans under President Barack Obama's foreclosure prevention plan.

Fannie Mae's regulator, the Federal Housing Finance Agency, had told the housing finance company it did not object to transferring the credits.

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